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Promissory Note/ Sign-on Bonus
Posted on 10/21/15 at 8:05 pm
Posted on 10/21/15 at 8:05 pm
Started a new job w/ a sign-on bonus agreed to via a Promissory Note signed by both parties. Agreement is that I would receive the bonus up-front with the stipulation that I repay + interest if I don't fulfill my two-year agreement.
Money was just put into my account but it was taxed heavily. I thought Promissory loan could not be taxed until it was forgiven?
Anyone smarter than me willing to shed some light for me.. I want to make sure I'm not getting screwed
Money was just put into my account but it was taxed heavily. I thought Promissory loan could not be taxed until it was forgiven?
Anyone smarter than me willing to shed some light for me.. I want to make sure I'm not getting screwed
This post was edited on 10/21/15 at 8:07 pm
4
Posted on 10/21/15 at 8:30 pm to lesgeaux
In Louisiana?
Posted on 10/21/15 at 8:32 pm to lesgeaux
Take a look at the step transaction rules. You got the money for a loan in which it is expected that the loan will be forgiven instead of repaid. Without the step transaction doctrine you would have the benefit of the money now with income recognized at some time in the future. Applying the step transaction doctrine, you have income when you receive the money.
If you should leave before the loan is forgiven and repay the loan, then you can apply the tax benefit rule to the repayment. The interest will not be deductible since it is considered personal interest.
If you should leave before the loan is forgiven and repay the loan, then you can apply the tax benefit rule to the repayment. The interest will not be deductible since it is considered personal interest.
Posted on 10/21/15 at 8:50 pm to nelatf
quote:
In Louisiana?
Yes, in LA
Posted on 10/22/15 at 8:24 am to lesgeaux
Not sure if you are correct or not, but if you are what happened was it most likely went through their payroll system so it was taxed as if that was a normal paycheck, therefore taxes were taken out. If you are correct it will be reflected in your tax refund
Posted on 10/22/15 at 8:38 am to lesgeaux
quote:
Started a new job w/ a sign-on bonus
quote:
receive the bonus up-front
Bonuses are taxed heavy in La - close to 40% if I remember correctly on my last one.
Posted on 10/22/15 at 9:25 am to swanny297
No
Posted on 10/22/15 at 9:48 am to Poodlebrain
quote:
Take a look at the step transaction rules.
Agree
quote:
You got the money for a loan in which it is expected that the loan will be forgiven instead of repaid.
I would not say in today's world, staying at the same employer for two years is an overreaching expectation.
Also, under this treatment, what happens to the payroll taxes that were withheld? I'd argue that you could take a deduction for income taxes for the wages included, but what happens to payroll taxes? Seems like he might be out those?
Posted on 10/22/15 at 9:52 am to swanny297
quote:If I had a dollar everytime I heard this.....
quote: Started a new job w/ a sign-on bonus quote: receive the bonus up-front Bonuses are taxed heavy in La - close to 40% if I remember correctly on my last one.
Bonuses are taxes no differently than a normal paycheck. However, a bonus is usually an amount larger than a standard paycheck for most people. So, when it is run through the payroll system the system assumes this is your new salary amount so it annualized the amount and you will most likely be taxed at the highest bracket. However, this will be fixed when you do your tax return
Posted on 10/22/15 at 10:51 am to TigerDeBaiter
quote:
No
Yes - 36.8% to be exact.
This post was edited on 10/22/15 at 11:03 am
Posted on 10/22/15 at 11:00 am to lsupride87
quote:If you are paid bonuses based on the percentage method it has nothing to do with your federal with holdings, state is taxed based on your W4 - at least that is how ours works.
Bonuses are taxes no differently than a normal paycheck
Posted on 10/22/15 at 11:23 am to swanny297
The way payroll systems are set up, it taxes a check assuming that paycheck will be repeated throughout the year. You don't actually get taxed at that rate, the systems just thinks your bonus check is your normal salary. You will get a tax return at the end of the year.
Posted on 10/22/15 at 3:29 pm to lesgeaux
quote:
Yes, in LA
My boss is struggling with sign on bonuses and non-compete agreements in this state.
Legal counsel advised that non-competes are usually worthless in Louisiana so my boss is looking at sign on bonuses with a period of commitment - just like you described.
I was researching the payroll impact - I should know this off the top of my head but I don't - and our payroll group did not either.
Posted on 10/22/15 at 4:51 pm to Poodlebrain
quote:
Take a look at the step transaction rules.
Do you mean Claim of Right doctrine?
Posted on 10/23/15 at 9:06 am to nelatf
Non competes won't hold up in court, but they aren't useless because most people don't want to go through the process of getting sued and having to defend themselves.
Also, to the mouth breathers that are arguing that bonuses are taxed at a much higher rate than salary: NO IT ISNT.
Also, to the mouth breathers that are arguing that bonuses are taxed at a much higher rate than salary: NO IT ISNT.
Posted on 10/23/15 at 11:22 am to TheHiddenFlask
quote:
lso, to the mouth breathers that are arguing that bonuses are taxed at a much higher rate than salary: NO IT ISNT
Many people consider what they are withheld at = what they are taxed at.
Of course this is not correct and is a big part of the reason why people don't understand the tax code and why we'll never have tax reform. They never actually "pay" their taxes - they just get their paychecks for a certain amount and get a small additional "refund" check once a year.
If everyone had to send in a check once a month or once a quarter for their taxes, we'd fix our tax code real quick.
Posted on 10/23/15 at 12:45 pm to LSUFanHouston
quote:Im a fellow CPA, and I beleive this would cause an actual revolution
If everyone had to send in a check once a month or once a quarter for their taxes, we'd fix our tax code real quick.
Posted on 10/23/15 at 1:45 pm to lsupride87
I would like to see it once a year.
Can you imagine how many grasshoppers would have to go get tax loans to pen that check?
Can you imagine how many grasshoppers would have to go get tax loans to pen that check?
Posted on 10/23/15 at 2:52 pm to swanny297
quote:
If you are paid bonuses based on the percentage method it has nothing to do with your federal with holdings, state is taxed based on your W4 - at least that is how ours works.
Posted on 10/23/15 at 3:38 pm to lsupride87
quote:
Im a fellow CPA, and I beleive this would cause an actual revolution
No doubt. Pitchforks would arrive in DC and Baton Rouge with the quickness.
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